Advantages of Franchising A Business

While franchising provides Franchisees with a proven system and the support of a much larger organization, the advantages to the Franchisor are even more significant.

Capital – Since Franchisees use their own capital, the Franchisor has virtually no investment at the unit level.

Bulk Buying Power – its all about units, the more units that you sell the better buying power you have. Franchising brings the ability to have the whole group collated as one to receive substantial discounts and rebates based on unit sales. This can be the difference in maintaining that competitive edge over your competitors.

Return on Investment – Because of this lower investment, ROI will be significantly higher.

Risk Reduction – With no capital invested in units, risk is reduced substantially.

Limited Contingent Liability – The Franchisor generally does not sign leases, or takes on financing, etc., and will thus expand with limited contingent liability.

Speed of Growth – By leveraging off of the time and efforts of its Franchisees, a Franchisor can grow much faster without adding staff.

Reduced Role in Day-to-Day Operations – As a Franchisor, your primary concern involves the Franchisee’s top line performance, reducing the scope of your involvement in day-to-day management.

Reduced Vicarious Liability – The liability for acts of employees (e.g., sexual harassment, EEO violations, etc.) and for occurrences in the outlet/ business (e.g., slip-and-fall) accrues to the Franchisee, not the Franchisor, for the most part.

Highly Motivated Management – Franchising can provide a company with highly motivated management who will treat individual units as its own.

Quality Control – Franchisees generally keep their units in better operational shape than company managers and, as a part of the community, are better able to promote these units locally.

Long-Term Management – The Franchisor can invest in the long-term training of its Franchisees, as they are unlikely to leave short-term.

Unit Performance – Units are generally better run, as is reflected in the fact that franchised stores generally outperform company-owned stores in terms of sales volume.

Lean Structure – Franchisors can grow the organization without adding significantly to overheads.

Brand Building – This ability to grow the organization without substantial additions to overhead will allow Franchisors to grow their retail presence and their brand more quickly and effectively.

Advertising – Franchisees will often contribute to a common advertising and promotional fund. This fund will be used to promote the brand under the direction of the Franchisor.

International – International expansion becomes easier, faster, and carries far less risk since a local partner becomes involved.

Moreover, it is important to note that franchising is not an exclusive strategy. Most Franchisors use it in conjunction with company-owned growth to compound growth and keep a revenue stream.